Mining shares outweigh Lloyd's losses to push FTSE higher

Further rises in mining shares after better than expected results from US aluminium group Alcoa sent the market higher despite a poor performance from Britain's part nationalised banks.

As well as the Alcoa figures - which got the US third quarter reporting season off to a good start - the mining sector also benefited from higher metal prices as the dollar continued to weaken. Kazakhmys closed 54p higher at £11.52, Antofagasta added 37p to 834.5p while Vedanta Resources rose 85p to £21.90 after an upbeat second quarter production report.

But reports that Lloyds Banking Group was considering a fundraising of up to £25bn to avoid the government's asset protection scheme sent its shares lower. Lloyds was said to be looking at a £15bn rights issue, with the rest of the cash coming from asset sales as well as the possible conversion of some of its hybrid debt instruments into bonds or equity. Lloyds lost 1.35p to 94.31p while Royal Bank of Scotland, where the government also owns a stake, lost 0.7p to 48.95p. But despite fears that such a large cash call from Lloyds could force investors to trim their holdings in the other banks to pay for the new shares, Barclays rebounded from early falls to close 5.65p better at 375.9p and HSBC ended 5.9p higher at 712.1p.

Overall, we still think that Lloyds will struggle to escape APS altogether, with a marked reduction in participation most likely. But it is increasingly difficult to analyse this bank right now and hence we stand by recent comments - that watching this evolve from the sidelines is probably sensible.

But Joe Dickerson, an analyst at Execution, said:

Opting out of the asset protection scheme would be hugely positive for the group, provided the bank is able to raise adequate capital from the market. Opting completely out of APS and raising fresh capital from the market has been the key driver of our buy call on Lloyds. Our view is that, in leaving the scheme, Lloyds' cost of term wholesale funding should decline materially because fixed income investors favour banks with de minimis government ownership. Our belief in this was also supported by price signals in the CDS market where Lloyds and RBS have been the only UK banks trading wider than their pre-Lehman levels.

So, helped by an opening gain on Wall Street, the FTSE 100 added 45.74 points to 5154.64. News that UK interest rates were kept on hold came as no surprise at all and had little impact on the market. Angus Campbell, head of sales at Capital Spreads, said:

A small move higher, but largely we went sideways and we still sit tentatively below the highs of the year. At the moment no one seems willing to stick their head above the parapet and drive the overall index higher. Whilst miners are picking up steam, banks are taking a dive, so the net effect is a flat market. There is still apprehension as we move further into the US corporate earnings season having seen a decent start from Alcoa. Investors need to see evidence that bottom line revenues are on the up leading to greater profitability from actually selling things as opposed to reducing their costs by making people redundant.

Elsewhere Burberry bounced 28p to 532.5p in the wake of a positive note yesterday from JP Morgan on the luxury goods retailer.

Among the mid-caps Carillion climbed 20p to 298.3p after the construction and support services group said it was on track to report a rise in earnings in 2009. Panmure Gordon said:

We continue to believe that the growth opportunity in the support services division, plus the ability to be selective on its construction related work, provides a key differentiator for the group. The valuation is attractive relative to its construction and services peers.

But Ladbrokes lost 9.8p to 171.4p after it unveiled a £275m rights issue alongside worse than expected quarterly figures, hit by having to pay out on racing and football bets. KBC Peel Hunt said:

Given previous comments from management the rights issue has come as a bit of a surprise but not a total one. Clearly trading has forced management's hand and this gives us some concern. This could well be trough earnings but in a rapidly changing gaming environment we question whether Ladbrokes will be a winner.

The poor trading news also hit rival William Hill, down 5.2p to 171p.

Hays slipped 0.2p to 106p after announcing it would take a £25m exceptional charge after being fined last month by the Office of Fair Trading for breaching competition law.

The company was hit with a £30.4m punishment by the OFT, but it said it intended to appeal, calling the level of the fine arbitrary and wholly disproportionate. News of the £25m charge came as the recruitment group reported a net 37% fall in fees in the first quarter to the end of September. It also said this year would be another tough one for the industry.

The contract is worth around $100m over five years, with the first shipments at the end of 2010. A new plant will be built in Papua New Guinea to produce the refined product. Ferrero will cover the costs of the plant and New Britain will also receive a margin and a sustainable premium. This is a key move for New Britain, as it reinforces its ethical status and is the first relationship with an end-market customer. [It] establishes a blueprint for future deals [and] sets the company apart from other producers.